The Power of Recognition

Finally, there may be signs that the economy is growing some solid legs. In March, the Dow climbed to a record high, propelled by optimism over the anticipated recovering housing market and lower unemployment. If the trend of rising company earnings is any indication, the momentum is likely to continue. For employers, that means what it always has: an uptick in competition for the best talent.

At the same time, barely out of the recession, companies can’t yet afford to make huge investments in salary increases or large bonuses. By developing employee recognition programs, employers can improve—in some cases dramatically—employee engagement levels, retention and performance. “Employee recognition is a potentially very low-cost engagement driver that can have a very, very significant impact on financial performance,” says Ken Oehler, global practice leader of engagement at human resources consultancy, AON Hewitt.

Oehler recently studied the relationship between recognition and engagement and found evidence of a strong connection. For starters, when employees were asked to name their top drivers of engagement, recognition came in at No. 2, well ahead of pay at No. 5. Aon also looked at the lag effect of engagement to sales growth and found that companies with above-average engagement scores correlated with 19 percent sales growth vs. companies below the norm on engagement, which reported only 6 percent sales growth.

And yet, the majority of companies don’t measure engagement or ROI on those programs, according to Eric Mosely, CEO of Globoforce, which designs social recognition programs and coauthored a study with the Society for Human Resources Professionals to measure the correlation between engagement and performance. “If it’s very informal and just about people giving gift cards, there’s no way to track the spend or get insights from mining the data,” says Mosely. The SHRM/Globoforce Employee Recognition Survey found that 42 percent of companies tracked engagement; but of those that did, the second most popular method was via employee exit interview. Although 80 percent of companies did have employee recognition programs—or plans to implement within 12 months—only 15 percent actually tracked return on investment for those programs.

Mosely notes that the stats point to a clear line between recognition and a variety of positive indicators: The companies that spent 1 percent or more of payroll on employee recognition programs saw an 85 percent positive impact on employee engagement and 59 percent saw a positive impact on financial results. Furthermore, six in 10 also said their recognition programs were helping with retention. “That means small, incremental performance at the individual, human level aggregates to improved company performance.”

There is no one-size-fits-all plan for recognition, but there are some best practices, including adopting a formal program that focuses on specific behaviors or outcomes, ideally tied back to the company’s core values, which uses peer-to-peer recognition rather than a top-down-only approach. Here are five best practices in action.

1. Make it easy to use.

From Paul Miller’s perspective, the need for recognition in the tech industry was even more important during the recession. “People were and still are putting in a ton of hours. It really needs to be more than the paycheck,” says the CEO of UBM Technology, which delivers business information, events, media, training, marketing and data services to the technology industry. Miller realized three years ago that he needed to get serious about a methodology for keeping employees happy and engaged, so he and his senior vice president for people and culture, Harris Grayman, began working on a technology-based recognition solution that capitalized on the social media tools they saw taking off in popular culture. The program, which rewards top performers, is called “The LOOT Awards,” or “The LOOTies,” for short, and stands for the “League of Overachieving Talent.” It uses an interface much like Facebook and employees at any level and in all divisions of the company can initiate recognition for any other employee in a public forum. Those awarded accumulate “Powerful Performance Points” that they can then trade in for a variety of rewards.

Although Miller admits that he hasn’t been able to draw the direct line directly from recognition to retention, he has seen some less tangible but equally important changes. For example, UBM Technology had previously struggled with being a siloed organization, with groups acting independently of one another. Since the LOOT program began, Miller has noticed employees rewarding colleagues in different parts of the organization frequently. The company has also seen a significant uptick in scores around recognition and respect on the annual employee engagement survey, which they compare not only to previous year’s scores but also to 60,000 other companies’ scores. They measure how many rewards are being given, as well as how active or passive employees are in giving them and reading the results. “To simply measure nothing because it’s a lot of intangible stuff, for me that would make it difficult to justify the investment,” he says, adding that the program also lets him see which of his high performers are winning the loyalty of their colleagues and showing real leadership potential.

2. Align recognition with corporate values.

CEO Dan Roitman founded his ecommerce company, Stroll, in a dorm room in 2000, just before the dot-com crash revealed that a whole slew of technology companies had incentivized all the wrong behavior. Since then, Stroll has grown at warp speed—at a compounded annual rate of 70 percent since 2002, with the goal of getting to $1 billion in revenues by 2020. Ever mindful of those early lessons, Roitman has made it a priority to align all rewards and recognition with the company’s values. “You really have to be very careful about making someone do something just for money versus getting them to do something because it’s the right thing to do,” he says.

Of course, they do both, but all forms of recognition are based on an employee’s fulfillment of one of the company’s values. Close to 50 percent of bonus potential is tied to each employee’s values scorecard, which measures how engaged each is with those values. As for non-monetary rewards, Roitman allocates a sizeable training and development budget to top groups and puts top performers into executive coaching. He also personally sends handwritten notes to standout employees and regularly awards gift cards. Although Roitman admits it’s been challenging to measure ROI for rewards, he notes that turnover is almost nonexistent.

3. Publicize and promote it.

For FedEx Freight, employee motivation is a critical component because employees are the face and the brand of the business. “So we have to focus on our employees and their ability to go out there and represent the brand and to feel empowered to make decisions on the fly to satisfy customers,” says FedEx Freight President and CEO William J. Logue.

To that end, the company has numerous, high-profile recognition programs designed to single out employees and make them feel a sense of ownership, including the “Five Star” award to recognize enhanced service and profitability. There are also those prizes that demonstrate teamwork: the “Bravo Zulu,” an on-the-spot achievement award of “quick cash” bonuses, theater tickets and/or dinner gift certificates, and the annual “Purple Promise” award dinner recognizes employees going above and beyond in the field to deliver superior customer service. Divisional CEOs are expected to attend awards ceremonies.

Each recognition program and award is tied to a corporate initiative. Safety, for example, is paramount for the delivery company. Each year, FedEx Freight participates in the national truck-driving championships, and those employee drivers who qualify based on exemplary safety records are paid to go to the national competition for several days with their spouses. “And then we take that messaging and push it back out there because those drivers, when they get back home, they talk.”

Logue measures ROI primarily through positive employee satisfaction surveys. “When you see good results there and you know you’re promoting the programs and employee satisfaction levels are strong, then you can tie the good productivity and service performance back to those locations that have really high employee survey numbers.”

4. Make it specific.

Softtek CEO Blanca Treviño sees employee recognition as built into the foundation of the company. When it first opened its doors in the early 1980s, the IT services company competed with the likes of IBM for top tech talent. Having a culture of recognition had to be a key differentiator.

Today, Softtek is a global IT company with over 7,000 associates and offices around the world and Treviño maintains a keen focus on employee recognition with six different programs that reward based on very specific metrics. For example, the “Annual Quality Award” recognizes the associates with the best understanding of quality with 1st, 2nd and 3rd place awards. The winners are then announced in a large, virtual event with participants from offices around the globe. “My Awards” allow employees to rack up points by fulfilling specific goals, such as receiving positive feedback from an internal or external customer, demonstrated problem-solving and even attending company events.

In terms of measuring program effectiveness, Treviño points to retention as one key metric. She notes that most of the awards are not given to employees within their first couple of years, and it’s during those first couple of years that Softtek sees its highest turnover due to competitor poaching. “We have very strong training programs and [our competitors] appreciate them, too. But if you take a look at our turnover after the third or fourth year, it’s quite low. Employees are engaged in the company and the culture and they don’t want to leave.” She also looks at the participation rate and the efforts to which employees go to win one of the awards. “They really work for it,” she says, adding that, for the company, “the investment [in recognition] is rather small, and the return is amazing.”

5. Measure results.

“When you’re growing, it’s hard to take the time to just say ‘thank you,’ ” says Jenny Vance, president of Indianapolis-based LeadJen, a fast-growing B2B provider of lead-generation services. Vance discovered that creating a little healthy competition for rewards enabled her to recognize her employees, motivate positive behavior and—at the same time—generate new business and money-saving ideas. She created two competitions. The first, called “My Contribution” challenged employees to collaborate in small teams to generate ideas that would have a positive impact on customers, company processes and the team or employees. In addition to noting the heavy participation amongst employees, Vance measured productivity levels before and after the contest and saw the number rise by 30 percent following completion of the contest. “That has a value of around $34,000 for the month based on labor costs for the team,” she notes. Since many of the ideas generated will be implemented, the results continue to have a payback for the company. Figuring in the labor and reward costs for the contest, Vance estimates a return of approximately 25 times investment.

The second contest was used to reach some aggressive growth targets and asked client account managers to come up with ways to grow existing accounts. The reward was $500 for the client account manager able to obtain the most incremental revenue over the time of the six-week contest. Ultimately, the four winning client account managers drove $202,448 in additional revenue for LeadJen. “That equates to around $120,000 incremental gross income for the organization based on our cost structure,” she notes. With the contest costing only $500, the estimated return was 240 times investment.

Ken Oehler notes that there really is no silver-bullet strategy for recognition. “[The] best practice that we see is companies really addressing the recognition issue from multiple angles,” he says. Both formal and informal recognition are important, depending on the goal, and leadership and CEO communication can be as effective as peer-led recognition. “Best practice is addressing at all those levels and then looking at it from an organizational perspective and getting down to that individual employee’s contribution to performance.”

The Recognition at Yum! Brands

For more on the power of effective recognition systems, see Chief Executive’s profile of 2012 Chief Executive of the Year David Novak of Yum! Brands (CE July/August 2o12). Novak, author of Taking People with You, is well-known for developing the lighthearted “rubber chicken” and “chattering teeth” awards credited for motivating Yum! employees.

 

C.J. Prince: C.J. Prince is a regular contributor to Chief Executive and other business publications.